Interim Results

RNS Number : 3553G
Science Group PLC
26 July 2021
 

 

 

 

 

 

26 July 2021

 

SCIENCE GROUP PLC

 

('Science Group', the 'Group' or the 'Company')

 

INTERIM RESULTS

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2021

 

 

 

Summary

 

· Record H1 results, ahead of the Board's upgraded expectations

 

· Group revenue growth of 10% to £40.7m (H1 2020: £36.9m) and 16% on constant currency basis

 

· Adjusted* operating profit increased by 47% to £7.25m (H1 2020: £4.9m)

 

· Adjusted* basic EPS growth of 51% to 13.3 pence (2020: 8.8 pence) and increase of 125% compared to H1 2019

 

· Review of future strategy for Frontier Smart Technologies completed, including margin enhancing royalty buyout

 

· Balance sheet remains strong with gross cash of £29.0m and net funds of £13.0m (2020: £22.0m and £4.9m) providing opportunity for further corporate activity


 

 

Enquiries:

Science Group plc

Tel: +44 (0) 1223 875 200

Martyn Ratcliffe, Chairman

www.sciencegroup.com

 

 

Stifel Nicolaus Europe Limited (Nominated Adviser and Joint Broker)

 

Nick Adams, Alex Price

Tel: +44 (0) 20 7710 7600

 

 

Liberum Capital Limited (Joint Broker)

 

Neil Patel, Cameron Duncan

Tel: +44 (0) 20 3100 2000

 

* Alternative performance measures are provided in order to enhance the shareholders' ability to evaluate and analyse the underlying financial performance of the Group. Refer to Note 1 for detail and explanation of the measures used.

 

 

Interim Results 2021

 

Science Group is an international, science-led services and product development organisation comprising three operating divisions: R&D Consultancy; Regulatory & Compliance; and Frontier Smart Technologies. The Group has a very strong balance sheet with significant cash resources and freehold property assets.

 

The Group achieved record results in H1 2021 delivering strong organic growth and a substantial increase in profitability, despite significant currency exchange headwinds. For the six months ended 30 June 2021, Group revenue was £40.7 million (H1 2020: £36.9 million), an organic growth rate of 10%, equivalent to 16% on a constant currency basis. The Group's adjusted operating profit increased by 47% to £7.25 million (H1 2020: £4.9 million) and by approx. 120% relative to the same period two years ago (H1 2019: £3.3 million).  Adjusted profit before tax was £6.9 million (H1 2020: £4.6 million).

 

Due to the Group's strong cash generation, self-funding of acquisitions and share buy-back programme, this strong performance has been achieved without shareholder dilution. As a result, adjusted basic earnings per share increased by 51% to 13.3 pence (H1 2020: 8.8 pence) and 125% over the past two years (H1 2019: 5.9 pence).

 

The Group retains a robust balance sheet with gross cash (excluding client funds) at 30 June 2021 of £29.0 million (30 June 2020: £22.0 million) and net funds of £13.0 million (30 June 2020: £4.9 million). The long term debt of £15.9 million is secured on the freehold properties. Excluding treasury shares, at 30 June 2021, the Company had 41.2 million shares in issue (30 June 2020:  41.6 million and 30 June 2019: 41.1 million) and held 0.8 million (30 June 2020: 0.4 million) shares in treasury. Total voting rights at 30 June 2021 were 41.1 million.

 

R&D Consultancy

The R&D Consultancy Division was established through the integration of the Group's Advisory, Applied Science and Product Development business activities. This Division combines leading science and engineering capabilities with expertise in key vertical sectors, namely: Medical; Consumer; Food & Beverage; and Industrial, Chemical & Energy. In the first half of 2021, the Medical Sector continued to be particularly strong, with the other sectors, which were more affected by the pandemic, reflecting their respective market sector environments. Most sectors are now seeing the initial signs of global economic recovery.

 

For the six months ended 30 June 2021, the R&D Consultancy Division generated services revenue of £15.2 million (H1 2020: £15.2 million). This is a good performance against a challenging comparator since the first half of 2020 included the one-off UK ventilator initiative. Furthermore, since 50% of the division revenue is invoiced in US Dollars and 7% in Euro in the first half of 2021, this performance has been achieved despite the material currency exchange headwinds and growth in services revenue would have been 4% on a constant currency basis.

 

For the period ended 30 June 2021, the Group's Services businesses (R&D Consultancy and Regulatory & Compliance) reported an aggregate adjusted operating profit margin of 19% (H1 2020: 16%).

 

Regulatory & Compliance

The Regulatory & Compliance Division includes the North American and European operations of TSG, acquired in 2017, and the Leatherhead Food Research business, acquired in 2015. The Division reported continued progress in the first half of 2021, including the launch of a new US capability in medical device regulatory advice, further strengthening the synergies with the R&D Consultancy Division.

 

For the six months ended 30 June 2021, the Regulatory & Compliance Division generated revenue of £10.5 million (H1 2020: £10.0 million), of which around 23% is of a recurring nature. This organic growth, equivalent to approx. 8% on a constant currency basis, was broadly consistent between the North American and European operations. As noted above, the Group's Services businesses (R&D Consultancy and Regulatory & Compliance) reported an aggregate adjusted operating profit margin of 19% (H1 2020: 16%).

 

Frontier Smart Technologies ('Frontier')

For the six months ended 30 June 2021, Frontier reported revenue of £13.6 million (H1 2020: £7.5 million) and an adjusted operating profit margin of 22% (H1 2020: 7%). This exceptionally strong performance reflects the momentum from the second half of 2020, but also a weaker comparator in the first half of 2020 due to the post-acquisition integration and the initial impact of the Covid pandemic. The most significant challenge in the current year continues to be the availability of materials associated with the global semiconductor supply constraints.

 

On 11 January 2021, having successfully completed the turnaround phase, the Board initiated a review of the strategy for the Frontier business. An update was provided on 19 May informing shareholders that the Board had concluded that the review had identified a number of opportunities to further enhance and develop the business and that Frontier was to be retained within the Group.

 

As part of the review, an agreement was reached with Imagination Technologies Limited ("Imagination") to buy out future royalties associated with the use of the Imagination licensed technology by Frontier and Group entities in consumer electronics (including DAB radio broadcast) for the sum of $6.0 million. For the year ended 31 December 2020, Frontier paid royalties of $1.0 million to Imagination in relation to licensing the technology. This agreement is effective 1 July 2021 and is anticipated to enhance the Frontier profit contribution in the second half of the year.

 

One of the growth opportunities identified in the strategy review was developing the SmartRadio market, an integrated product category that combines DAB, FM and Internet radio. In progressing this opportunity, the Board is exploring both internal developments and potential acquisition opportunities.

 

In summary, the Board considers the Frontier acquisition to have been very successful and anticipate a rapid payback of the cost of acquisition, including transaction and restructuring costs. The strategy review has set out the future direction for this very profitable business.

 

Freehold Properties

Science Group owns two freehold properties, Harston Mill near Cambridge and Great Burgh in Epsom. The Group's triennial freehold property valuations were undertaken in March 2021. Despite the timing in the midst of the Covid pandemic, there were only minor changes to the valuations with a range between £23 million and £35 million, the latter being a sale & leaseback model. The properties are held on the balance sheet on a cost basis at £21.1 million (30 June 2020: £21.3 million).

 

For the six months ended 30 June 2021, the rental and associated services income of £0.3 million (H1 2020: £0.6 million) was generated from third-party tenants and £1.5 million (H1 2020: £1.6 million) from the Group's operating businesses. Intra-group charges are eliminated on Group consolidation but this approach ensures that the reported profit for each operating business includes property rental at market rates.

 

The Group's debt of £15.9 million at 30 June 2021 (£17.1 million at 30 June 2020) is primarily secured against the freehold property assets and the associated interest charge for the six month period was £0.3 million (H1 2020: £0.4 million). Interest on the debt is reported below operating profit in the consolidated results. There are no operating covenants on the debt provided that net bank debt does not exceed £10 million.

 

The deferred transfer of the Harston Mill property from Sagentia Limited to Quadro Harston Limited, formerly Sagentia Technology Advisory Limited, is now well advanced and is awaiting final bank approval before being completed. Resolving this legacy issue provides a more appropriate and flexible corporate structure and better aligns with the debt model related to the freehold properties. A tax cash outflow of £2.0 million is anticipated in 2021.

 

 Corporate

The corporate function is responsible for Group and PLC matters, together with the strategic development of Science Group.  In the period to 30 June 2021, Corporate costs were £1.4 million (H1 2020: £0.9 million) due to one-off items.

 

The Board continues to explore opportunities to increase the scale of the Group. In recent months, such opportunities have included add-on acquisitions into each of the operating divisions and larger acquisitions which would extend the Group's capabilities. There can be no certainty that any acquisitions will be completed.

 

Summary

 

In summary, the performance of Science Group in the first half of 2021 has been well ahead of the Board's expectations, with all divisions performing well. The excellent first half provides a solid platform for the rest of the year.

 

Frontier is now an integral part of Science Group. Despite the pandemic, the post-acquisition turnaround was very successful and the Board anticipates a rapid payback of the cost of acquisition. The strategy review identified a number of opportunities to further enhance the profitability of this business and areas for future investment.

 

The effectiveness of the Group's acquisition strategy and its disciplined operating model, funded by strong cash generation, is clearly demonstrated by the substantial increase in adjusted operating profit and earnings per share over the past decade. This is particularly apparent in the past two years as a result of the larger acquisition in 2019. With a strong balance sheet including significant cash resources, the Board continues to explore both add-on acquisitions and larger opportunities to increase the scale of the Group.

 

 

Consolidated Income Statement

For the period ended 30 June 2021

 

 

 

 

 

 

 

Note

Six months

ended

30 June

2021

(Unaudited)

£000

Six months

ended

30 June

2020

(Unaudited)

£000

Year

ended

31 December

2020

(Audited)

£000

 

 

 

 

 

Revenue

4

40,655

36,895

73,663

Direct operating expenses

 

(23,555)

(22,945)

(43,861)

Sales and marketing expenditure

 

(4,388)

(4,108)

(8,112)

Administrative expenses

 

(6,981)

(6,994)

(14,561)

 

 

 

 

 

Adjusted operating profit

 

7,250

4,925

10,885

Acquisition integration costs

 

-

(127)

(10)

Amortisation of acquisition related intangible assets

 

(1,208)

(1,259)

(2,507)

Share based payment charge

 

(311)

(691)

(1,239)

 

 

 

 

 

Operating profit

 

5,731

2,848

7,129

 

 

 

 

 

Finance income

 

-

5

9

Finance costs

 

(340)

(376)

(746)

 

 

 

 

 

Profit before income tax

 

5,391

2,477

6,392

Income tax (charge)/credit (including R&D tax credit of £124,000 (H1-20 £142,000))

6

(711)

(465)

647

Profit for the period

4

4,680

2,012

7,039

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

Earnings per share from continuing operations (basic)

7

11.4p

4.8p

16.9p

Earnings per share from continuing operations (diluted)

7

11.1p

4.6p

16.7p

 

 

 

 

 

Adjusted earnings per share from continuing operations (basic)

7

13.3p

8.8p

19.4p

Adjusted earnings per share from continuing operations (diluted)

7

13.0p

8.5p

19.1p

 

 

Consolidated Statement of Comprehensive Income

For the period ended 30 June 2021

 

 

 

Six months

ended

30 June

2021

(Unaudited)

£000

Six months

ended

30 June

2020

(Unaudited)

£000

Year

ended

31 December

2020

(Audited)

£000

 

 

 

 

 

Profit for the period attributable to:

 

 

 

 

Equity holders of the parent

 

4,680

2,012

7,039 

Profit for the period

 

4,680

2,012

7,039

 

 

 

 

 

Other comprehensive income

Items that will or may be reclassified to profit or loss:

 

 

 

 

Exchange differences on translating foreign operations

 

(186)

799

  (358) 

Fair value gain/(loss) on interest rate swap

 

382

(536)

(519)

Deferred tax on interest rate swap

 

 

(71)

101

96

Other comprehensive income/(expense) for the period

 

125

364

(781)

 

 

 

 

 

Total comprehensive income for the period attributable to:

 

 

 

 

Equity holders of the parent

 

4,805

2,376

6,258

Total comprehensive income for the period

 

 

4,805

2,376

6,258

 

 

 

 

 

 

Consolidated Statement of Changes in Shareholders' Equity (unaudited)

For the period ended 30 June 2021

 

Group

 

 

Issued

capital

 

 

£000

Share

premium

 

 

£000

Treasury

Stock

 

 

£000

Merger

reserve

 

 

£000

Translation

reserve

 

 

£000

Cash flow hedge reserve

 

£000

Retained

earnings

 

 

£000

Total -

Share-

holders'

funds

£000

Total

equity

 

 

£000

 

Balance at 1 January 2020

421

9,102

(660)

10,343

(679)

-

17,742

36,269

36,269

 

Purchase of own shares

-

-

(166)

-

-

-

-

(166)

(166)

 

Share based payment charge

-

-

-

-

-

-

691

691

691

 

Deferred tax on share based payment transactions

-

-

-

-

-

-

(63)

(63)

(63)

 

Transactions with owners

-

-

(166)

-

-

-

628

462

462

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

2,012

2,012

2,012

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

Transfer of cash flow hedge reserve from retained earnings

-

-

-

-

-

(115)

115

-

-

 

Fair value (loss) on interest rate swap

-

-

-

-

-

(536)

-

(536)

(536)

 

Exchange differences on translating foreign operations

-

-

-

-

799

-

-

799

799

 

Deferred tax on interest rate swap

-

-

-

-

-

101

-

101

101

 

Total comprehensive income for the period

-

-

-

-

799

(550)

2,127

2,376

2,376

 

Balance at 30 June 2020

421

(826)

120

(550)

39,107

39,107

 

 

 

 

 

Group

 

 

Issued

capital

 

 

£000

Share

premium

 

 

£000

Treasury

Stock

 

 

£000

Merger

reserve

 

 

£000

Translation

reserve

 

 

£000

Cash flow hedge reserve

 

£000

Retained

earnings

 

 

£000

Total -

Share-

holders'

funds

£000

Total

equity

 

 

£000

Balance at 1 July 2020

421

9,102

(826)

10,343

120

(550)

20,497

39,107

39,107

Purchase of own shares

 

 

(1,506)

 

 

 

 

(1,506)

(1,506)

Issue of shares out of treasury stock

-

-

436

-

-

-

(429)

7

7

Dividends paid

-

-

-

-

-

-

(830)

(830)

(830)

Share based payment charge

-

-

-

-

-

-

548

548

548

Deferred tax on share based payment transactions

-

-

-

-

-

-

182

182

182

Total contributions and distributions

-

-

(1,070)

-

-

-

(529)

(1,599)

(1,599)

 

Profit for the period

 

-

 

-

 

-

 

-

 

-

 

-

 

5,027

 

5,027

 

5,027

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Fair value gain on interest rate swap

-

-

-

-

-

17

-

17

17

Exchange differences on translating foreign operations

-

-

-

-

(1,157)

-

-

(1,157)

(1,157)

Deferred tax on interest rate swap

-

-

-

-

-

(5)

-

 

(5)

(5)

Total comprehensive income for the period

 

-

 

-

 

-

 

-

 

(1,157)

 

12

 

5,027

 

3,882

 

3,882

Balance at 31 December 2020

 

421

 

9,102

 

(1,896)

 

10,343

 

(1,037)

 

(538)

 

24,995

 

41,390

 

41,390

 

 

 

Group

 

 

Issued

capital

 

 

£000

Share

premium

 

 

£000

Treasury

Stock

 

 

£000

Merger

reserve

 

 

£000

Translation

reserve

 

 

£000

Cashflow hedge

reserve

£000

Retained

earnings

 

 

£000

Total -

Share-

holders'

funds

£000

Total

equity

 

 

£000

Balance at 1 January 2021

421

9,102

(1,896)

10,343

(1,037)

(538)

24,995

41,390

41,390

Purchase of own shares

-

-

(238)

-

-

-

-

(238)

(238)

Issue of shares out of treasury stock

-

-

183

-

-

-

(182)

1

1

Dividends paid

-

-

-

-

-

-

(1,642)

(1,642)

(1,642)

Share based payment charge

-

-

-

-

-

-

311

311

311

Deferred tax on share based payment transactions

-

-

-

-

-

-

264

264

264

Transactions with owners

-

-

(55)

-

-

-

(1,249)

(1,304)

(1,304)

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

4,680

4,680

4,680

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Fair value gain on interest rate swap

-

-

-

-

-

382

-

382

382

Exchange differences on translating foreign operations

-

-

-

-

(186)

-

-

(186)

(186)

Deferred tax on interest rate swap

-

-

-

-

-

(71)

-

(71)

(71)

Total comprehensive income for the period

-

-

-

-

(186)

311

4,680

4,805

4,805

Balance at 30 June 2021

421

9,102

(1,951)

10,343

(1,223)

(227)

28,426

44,891

44,891

 

 

 

 

 

Consolidated Balance Sheet

At 30 June 2021

 

 

 

 

 

 

Note

 

At 30 June

2021

(Unaudited)

£000

 

At 30 June

2020

(Unaudited)

£000

At 31

December

2020

(Audited)

£000

Assets

 

 

 

 

 

Non-current assets

 

 

 

 

 

Acquisition related intangible assets

 

 

9,221

12,512

10,514

Goodwill

 

 

13,604

13,998

13,657

Property, plant and equipment

 

 

23,542

24,766

23,809

Deferred tax assets

 

 

711

51

1,322

 

 

 

47,078

51,327

49,302

Current assets

 

 

 

 

 

Inventories

 

 

1,214

1,781

1,263

Trade and other receivables

 

 

10,862

9,450

10,784

Current tax asset

 

 

2,793

264

1,627

Cash and cash equivalents - Client funds

 

8

2,228

4,121

2,015

Cash and cash equivalents - Group cash

 

8

28,962

22,001

27,059

 

 

 

46,059

37,617

42,748

 

 

 

 

 

 

  Total assets

 

 

93,137

88,944

92,050

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

 

 

25,899

23,862

26,365

Current tax liabilities

 

 

231

577

394

Provisions

 

9

877

669

678

Borrowings

 

10

1,200

1,200

1,200

Lease liabilities

 

11

1,191

1,423

1,247

 

 

 

29,398

27,731

29,884

Non-current liabilities

 

 

 

 

 

Provisions

 

9

679

506

659

Borrowings

 

10

14,715

15,908

15,307

Lease liabilities

 

11

499

1,736

1,038

Derivative financial liabilities

 

 

252

651

634

Deferred tax liabilities

 

 

2,703

3,305

3,138

 

 

 

18,848

22,106

20,776

 Total liabilities

 

 

48,246

49,837

50,660

 

 

 

 

 

 

  Net assets

 

 

44,891

39,107

41,390

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

Share capital

 

 

421

421

421

Share premium

 

 

9,102

9,102

9,102

Treasury stock

 

 

(1,951)

(826)

(1,896)

Merger reserve

 

 

10,343

10,343

10,343

Translation reserve

 

 

(1,223)

120

(1,037)

Cash flow hedge reserve

 

 

(227)

(550)

(538)

Retained earnings

 

 

28,426

20,497

24,995

 Total equity

 

 

44,891

39,107

41,390

 

 

 

 

 

Consolidated Statement of Cash Flows

For the period ended 30 June 2021

 

Six months ended

30 June

2021

(Unaudited) £000

Six months

ended

30 June

2020

(Unaudited)

£000

Year

ended

31 December

2020

(Audited)

£000

 

 

 

 

Profit before income tax

5,391

2,477

6,392

Adjustments for:

 

 

 

Amortisation on acquisition related intangible assets

1,208

1,259

2,507

Depreciation on property, plant and equipment

364

580

904

Impairment of right of use assets

-

540

513

Depreciation of right of use assets

401

548

1,067

Loss on disposal of property, plant and equipment

-

-

7

Net interest cost

340

376

737

Share based payment charge

311

691

1,239

Decrease in inventories

49

279

394

(Increase)/decrease in receivables

(79)

825

(546)

Increase in payables representing client funds

213

2,604

498

(Decrease)/increase in payables excluding balances representing client funds

(670)

366

5,976

Change in provisions

228

510

735

 Cash generated from operations

7,756

11,055

20,423

 

 

 

 

Loan interest paid

(293)

(300)

(753)

UK corporation tax paid

(1,131)

(292)

(1,799)

Foreign corporation tax paid

(540)

(24)

(184)

 Cash flows from operating activities

5,792

10,439

17,687

 

 

 

 

 

 

 

 

Interest received

-

5

9

Purchase of property, plant and equipment

(411)

(38)

(143)

 Cash flow used in investing activities

(411)

(33)

(134)

 

 

 

 

Issue of shares out of treasury

1

-

7

Repurchase of own shares

(238)

(166)

(1,672)

Dividends paid

(1,642)

-

(830)

Proceeds from bank loans

-

1,500

1,500

Repayment of bank loans

(600)

(600)

(1,200)

Payment of lease liabilities

(720)

(742)

(1,339)

 Cash flows used in financing activities

(3,199)

(8)

(3,534)

 

 

 

 

 

 

 

 

Increase in cash and cash equivalents in the period

2,182

10,398

14,019

Cash and cash equivalents at the beginning of the period

29,074

15,429

15,429

Exchange (loss)/gain on cash

(66)

295

(374)

Cash and cash equivalents at the end of the period

31,190

26,122

29,074

 

 

Cash and cash equivalents is analysed as follows:

Six months

ended

30 Jun

2021

(Unaudited)

£000

Six months

ended

30 June

2020

(Unaudited)

£000

Year ended

31

December

2020

(Audited)

£000

Cash and cash equivalents - Client funds

2,228

4,121

2,015

Cash and cash equivalents - Group cash

28,962

22,001

27,059

 

31,190

26,122

29,074

 

 

 

Extracts from notes to the financial statements

 

1.  General information

The financial information for the 6 months ended 30 June 2021 set out in this interim report is unaudited and does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.  The financial information included for the year ended 31 December 2020 has been extracted from the 2020 Financial Statements of Science Group plc.  The Group's statutory financial statements for the year ended 31 December 2020 have been filed with the Registrar of Companies.  The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

 

These unaudited interim results have been approved for issue by the Board of Directors on 23 July 2021.

 

The Group and Company financial statements of Science Group plc for the year ended 31 December 2020 were prepared under IFRS (as adopted by the EU) and have been audited by Grant Thornton UK LLP. Copies of the Financial Statements are available from the Company's registered office: Harston Mill, Harston, Cambridge, CB22 7GG and can be found on the Company's website at www.sciencegroup.com.

 

Science Group plc (the 'Company') and its subsidiaries (together 'Science Group' or 'Group') is an international, science-led services and product development organisation with a freehold property asset base.

 

The Company is the ultimate parent company in which results of all the Science Group companies are consolidated.

 

The Company is incorporated in England and Wales and is listed on the AIM Market of the London Stock Exchange (SAG).

 

 

Alternative performance measures

The Group uses alternative (non-Generally Accepted Accounting Practice ('non-GAAP')) performance measures of 'adjusted operating profit', 'adjusted earnings per share' and 'net funds' which are not defined within the International Financial Reporting Standards ('IFRS'). These are explained in the 2020 Financial Statements and the calculations are as follows:

 

(a) Adjusted operating profit

The calculation of this measure is shown on the Consolidated Income Statement.

 

(b) Adjusted earnings per share

The calculation of this measure is disclosed in Note 7.

 

(c) Net funds

This measure is calculated as follows:

In £000 unless otherwise stated

At 30 June 2021

At 30 June 2020

At 31 December 2020

Cash and cash equivalents - Group cash

28,962

22,001

27,059

Borrowings

(15,915)

(17,108)

(16,507)

Net funds

13,047

4,893

10,552

 

2. Accounting policies

The principal accounting policies applied in the preparation of these interim financial statements are unchanged from those set out in the financial statements for the year ended 31 December 2020. These policies have been consistently applied to all the periods presented.

 

2.1 Basis of preparation

These interim consolidated financial statements are for the six months ended 30 June 2021. They have been prepared based on the measurement and recognition principles of International Financial Reporting Standards as adopted by the EU and IFRIC interpretations issued and effective at the time of preparing these statements.

 

The financial statements have been prepared on the historical cost basis except for certain financial instruments and share based payments which are measured at fair value.

 

Going concern - the Directors have considered the current cash balance of £29.0m (excluding client funds) and assessed forecast future cash flows for the next 12 months. There are no events or conditions which cast significant doubt on the ability of the Group to continue as a going concern. The term loan has no operating covenants while the Group net bank debt is less than £10 million.  On the basis of the forecast future cash flows, the Directors do not expect the Group net bank debt to exceed £10 million at any time during the forecast period. The Directors are satisfied that the Group has adequate cash and financing resources to continue in operational existence for the foreseeable future, being a period of at least a year following the release of these unaudited interim results and therefore continue to adopt the going concern basis of accounting in preparing the interim financial statements.

 

3.  Financial risk management

3.1 Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest risk and price risk), credit risk, liquidity risk and cash flow interest-rate risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

 

4.  Segmental information

The Group is structured into 4 reporting Segments: Services Operating Business, Product Operating Business, Freehold Properties and Corporate. The Services Operating Business comprises two operating divisions: R&D Consultancy and Regulatory & Compliance. Frontier Smart Technologies, the third operating division, is the Product Operating Business. The performance of the Operating Businesses are shown separately from the value generated by the Group's significant freehold property assets and the Corporate costs to provide greater transparency and facilitate shareholder analysis of the component parts of the Group.

 

Financial information is provided to the chief operating decision makers ('CODMs') in line with this structure. The divisions of R&D Consultancy and Regulatory & Compliance have been aggregated resulting in one Services Operating Business segment because the divisions have similar economic characteristics such as similar long-term average gross margins, trends in sales growth and operating cash flows and are also similar in respect of their nature, delivery and types of customers that the services are provided to. This aggregation does not impact the user's ability to understand the entity's performance, its prospects for future cash flows or the user's decisions about the entity as a whole as it is a fair representation of the performance of each division.

 

In the Services Operating Business Segment, services revenue includes all consultancy fees and other revenue includes recharged materials, expenses and licence revenue generated directly from the Services Operating Business activities. Product Operating Business revenue includes sales of chips and modules which are incorporated into digital radios. The Freehold Properties segment includes the results for the two freehold properties owned by the Group. Income is derived from third party tenants from the Harston Mill site and from the Services and Product Operating Businesses which have been charged equivalent to market-based rents for their utilised property space and associated costs. Corporate costs include PLC/Group costs.

 

The segmental analysis is reviewed to operating profit. Other resources are shared across the Group.

 

 

 

Services Operating Business

 

 

Six months ended

 30 June 2021

(Unaudited)

£000

Six months ended

30 June 2020

(Unaudited)

£000

Year ended

31 December 2020

(Audited)

£000

Services revenue

25,750

25,268

48,198

Other

1,029

3,506

4,077

Revenue

26,779

28,774

52,275

 

 

 

 

Adjusted operating profit

5,177

4,520

9,068

 

 

 

 

Amortisation of acquisition related intangible assets

(746)

(757)

(1,513)

Share based payment charge

(278)

(569)

(946)

Operating profit

4,153

3,194

6,609

 

 

 

 

 

 

Product Operating Business

 

 

Six months ended

 30 June 2021

 (Unaudited)

£000

Six months ended

30 June 2020

(Unaudited)

£000

Year ended

31 December 2020

(Audited)

£000

Product revenue

13,620

7,541

20,540

Revenue

13,620

7,541

20,540

 

 

 

 

Adjusted operating profit

2,967

495

3,245

 

 

 

 

Acquisition and integration costs

-

(127)

(10)

Amortisation of acquisition related intangible assets

(462)

(502)

(994)

Share based payment charge

(98)

(77)

(185)

Operating profit/(loss)

2,407

(211)

2,056

 

 

Freehold Properties

Six months ended

 30 June 2021

(Unaudited)

£000

Six months ended

30 June 2020

(Unaudited)

£000

Year ended

31 December 2020

(Audited)

£000

Inter-company property income

1,522

1,573

3,189

Third party property income

256

580

848

Revenue

1,778

2,153

4,037

 

 

 

 

Adjusted operating profit

495

794

954

Share based payment charge

(10)

(7)

(21)

Operating profit

485

787

933

 

 

 

Corporate

Six months ended

 30 June 2021

(Unaudited)

£000

Six months ended

30 June 2020

(Unaudited)

£000

Year ended

31 December 2020

(Audited)

£000

Adjusted operating loss

(1,389)

(884)

(2,382)

 

 

 

 

Share based payment credit/(charge)

75

(38)

(87)

Operating loss

(1,314)

(922)

(2,469)

 

 

Group

 

 

Six months ended

 30 June 2021

Total (Unaudited)

£000

Six months ended

30 June

2020

  Total (Unaudited)

£000

 

 

Year

ended

31 December 2020

 Total (Audited) £000

Services revenue

25,750

25,268

48,198

Product revenue

13,620

7,541

20,540

Third party property income

256

580

848

Other

1,029

3,506

4,077

Revenue

40,655

36,895

73,663

 

 

 

 

Adjusted operating profit

7,250

4,925

10,885

 

 

 

 

Acquisition and integration costs

-

(127)

(10)

Amortisation of acquisition related intangible assets

(1,208)

(1,259)

(2,507)

Share based payment charge

(311)

(691)

(1,239)

Operating profit

5,731

2,848

7,129

Finance charges (net)

(340)

(371)

(737)

Profit before income tax

5,391

2,477

6,392

Income tax (charge)/credit

(711)

(465)

647

Profit for the period

4,680

2,012

7,039

 

In the Freehold Properties segment, income includes £1.5 million (H1 2020: £1.6 million) generated from inter-segment recharges. The corresponding cost is included within the Operating Business segments and is eliminated on consolidation.

 

 

5.  Revenue

The Group's operations and main revenue streams are those described in the last annual financial statements. The Group's revenue is derived from contracts with customers.

 

Disaggregation of revenue

In the following table, revenue is disaggregated by geographical market and by the currency in which the contract is denominated for the Operating Business. Property revenue is generated in the UK and denominated in GBP.

 

For the 6 months ended 30 June (Unaudited)

 

Currency

 

USD

£000

EUR

£000

GBP

£000

Other

£000

Total

£000

2021

 

25,209

1,855

13,583

8

40,655

2020

 

17,316

1,669

17,844

66

36,895

 

 

 

 

 

 

 

Geographical market

North America

£000

Europe (excl UK)

£000

UK

£000

 

Asia

£000

Other

£000

Total

£000

2021

13,469

6,344

5,482

15,196

164

40,655

2020

11,215

6,752

10,475

8,188

265

36,895

 

 

6. Income tax

The income tax charge for the period ended 30 June 2021 is charged at the effective tax rate calculated for the period using reasonable estimates and incorporating both current and deferred taxation:

 

Six months

ended

30 June 2021

(Unaudited)

£000

Six months

ended

30 June 2020

(Unaudited)

£000

Year ended

31 December

2020

(Audited)

£000

Profit before tax

5,391

2,477

6,392

Current taxation

(958)

(1,114)

(1,492)

Current taxation - adjustment in respect of prior years

(126)

-

240

Deferred taxation

249

507

1,806

Deferred taxation - adjustment in respect of prior years

-

-

(155)

R&D tax credit

124

142

248

Tax (charge)/credit

(711)

(465)

647

 

 

 

 

Effective tax rate

13.2%

18.8%

(10.1%)

 

The Group claims Research and Development tax credits under both the R&D Expenditure Credit scheme and the Small or Medium-sized scheme. In the year ended 31 December 2020, the tax credit arose primarily due to the recognition of tax losses within Frontier as a deferred tax asset.

 

 

 

7.  Earnings per share

The calculation of earnings per share is based on the following results and number of shares:

 

Six months

ended

30 June 2021

(Unaudited)

£000

Six months

ended

30 June 2020

(Unaudited)

£000

Year ended

31 December 2020

(Audited)

£000

Profit for the financial period

4,680

2,012

7,039

 

Weighted average number of shares:

 

 

 

For basic earnings per share

41,217,451

41,681,034

41,631,118

For fully diluted earnings per share

42,366,174

43,314,594

42,229,766

 

Earnings per share:

 

Pence

 

Pence

 

Pence

Basic earnings per share

11.4

4.8

16.9

Fully diluted earnings per share

11.1

4.6

16.7

 

The calculation of adjusted earnings per share is as follows:

 

Six months

ended

30 June 2021

(Unaudited)

£000

Six months

ended

30 June 2020

(Unaudited)

£000

Year ended

31 December

2020

(Audited)

£000

Adjusted* profit after tax for the period

5,500

3,671

8,078

 

Weighted average number of shares:

 

 

 

For basic earnings per share

41,217,451

41,681,034

41,631,118

For fully diluted earnings per share

42,366,174

43,314,594

42,229,766

 

Adjusted earnings per share:

 

Pence

 

Pence

 

Pence

Basic earnings per share

13.3

8.8

19.4

Fully diluted earnings per share

13.0

8.5

19.1

 

*Calculation of adjusted profit after tax:

 

Six months

ended

30 June 2021

(Unaudited)

£000

Six months

ended

30 June 2020

(Unaudited)

£000

Year ended

31 December

2020

(Audited)

£000

Adjusted operating profit

7,250

4,925

10,885

Finance income

-

5

9

Finance costs

(340)

(376)

(746)

Adjusted profit before tax

6,910

4,554

10,148

Tax charge at approx. blended average tax rate of 20.4% (H1-20: 19.4%)

 

(1,410)

 

(883)

 

(2,070)

Adjusted profit after tax

5,500

3,671

8,078

 

 

8. Cash and cash equivalents

Six months

ended

30 June

2021

(Unaudited)

£000

Six months

ended

30 June

2020

(Unaudited)

£000

Year ended

31

December

2020

(Audited)

£000

Cash and cash equivalents - Client funds

2,228

4,121

2,015

Cash and cash equivalents - Group cash

28,962

22,001

27,059

 

31,190

26,122

29,074

 

The Group receives cash from clients for the purpose of payment of registration fees to regulatory bodies and other project pass through costs.  Client funds are separated in the day to day operations of the business, are separately identified for reporting purposes and are unrestricted.

 

9.  Provisions

(Unaudited)

Dilapid

-ations

£000

Restruct-uring

£000

Legal

 

£000

Other

 

£000

Total

 

£000

At 1 January 2020

562

90

-

-

652

Increase in provision

13

-

562

-

575

Utilisation of provision

(26)

-

(59)

-

(85)

Loss on foreign currency  fluctuations

31

-

2

-

33

At 30 June 2020

580

90

505

-

1,175

Increase in provision

264

-

97

14

375

Utilisation of provision

-

(10)

(90)

-

(100)

Provision reversed during the year

(36)

-

-

-

(36)

Gain on foreign currency fluctuations

(44)

-

(33)

-

(77)

At 31 December 2020

764

80

479

14

1,337

Increase in provision

20

-

240

6

266

Utilisation of provision

(5)

(10)

(23)

-

(38)

Gain on foreign currency fluctuations

(6)

-

(3)

-

(9)

At 30 June 2021

773

70

693

20

1,556

 

 

At 30 June

2021

(Unaudited)

£000

At 30 June

2020

(Unaudited)

£000

At 31 December

2020

(Audited)

£000

Current liabilities

877

669

678

Non-current liabilities

679

506

659

 

1,556

1,175

1,337

 

Legal provisions represent the best estimate of the future cost of responding to US subpoenas relating to litigation and investigations directed at third parties. The business will seek to recover these costs against the third party but cannot be guaranteed. The restructuring provision relates to the costs associated with the closure of some non-trading Group entities and is anticipated to be utilised during the next 12 months.

 

 

10. Borrowings

 

At 30 June

2021

(Unaudited)

£000

At 30 June

2020

(Unaudited)

£000

At 31 December

2020

(Audited)

£000

Non-current bank borrowings

14,715

15,908

15,307

Current bank borrowings

1,200

1,200

1,200

 

15,915

17,108

16,507

 

 

 

 

The Group has a 10-year fixed term loan and has interest rate swaps in place to fix the interest at an effective rate of 3.5%.  The repayment profile of the loan is £1.2 million per annum over the term with the remaining balance repaid on expiry of loan in 2026.

 

11. Lease liabilities

 

At 30 June

2021

(Unaudited)

£000

At 30 June

2020

(Unaudited)

£000

At 31 December

2020

(Audited)

£000

Non-current lease liabilities

499

1,736

1,038

Current lease liabilities

1,191

1,423

1,247

 

1,690

3,159

2,285

 

Lease liabilities arise on leased properties held by the Group. The leases have remaining periods of between 1 and 4 years from the balance sheet date.

 

12.Subsequentevents

On 15 July 2021, an agreement was reached with Imagination Technologies Limited, effective 1 July 2021, to settle all future royalties associated with the use of the licensed technology in the consumer electronics market (including DAB radio broadcast) for a single payment of $6.0 million (£4.3 million).

 

13. Critical accounting estimates and judgements

In preparing these interim financial statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates.

 

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those described in the last annual financial statements.

 

 

- Ends -

 

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